As the baby boomer population continues to grow, the price of retirement homes in sunny locations like Palm Springs and Fort Lauderdale continue to rise. Using self-directed IRAs, some investors are now purchasing these retirement dream homes well before their retirement years. Foreseeing a rise in the cost of retirement properties, most notably waterfront properties, these investors have been capitalizing on a relatively unknown IRS code that enables the purchase of investment real estate within Individual Retirement Accounts (IRAs).
As long as the property is used as an investment, it can remain in your IRA. Jill Jensen, a real estate broker in the greater Puget Sound area stated, "There are many advantages to purchasing waterfront and retirement property, before retirement, with IRA funds. These types of properties are appreciating at greater rates than traditional real estate. Buying the property now locks in today's prices while allowing for potentially large appreciation and a high return on your investment." Jensen continued, "this can provide great returns for most IRAs."
According to Andy Saddler, a realtor who specializes in self-directed IRA investing, retirement homes can and are being purchased with IRA funds. Enthusiastically, Saddler explains "In this way your IRA can receive the monthly rental cash flow and gain the appreciation. When you are ready to retire, after 59 ½, you will take over the property as a distribution from your IRA and pay applicable taxes on it at your future tax bracket. Here's how it works! Upon moving into the home you will trigger a distribution and be taxed on the full amount. One way to keep the taxes as low as possible is to make incremental assignments of a percentage of a grant deed (generally done through a title company) so you can spread out the tax payments and percentages over many years. The key is that the property cannot be used for personal use until 100% has been distributed through the assignment process. If using a Roth IRA this distribution would be completely tax free - this makes a Roth very attractive for this particular strategy."
The idea of assuring you get your dream retirement home while providing a large, secure return for your IRA is exciting news for many.
What to Look for
- Low housing costs—Condos usually have higher association fees. Townhouses generally have lower maintenance fees than houses. Compare your available options carefully. Your agent should provide information on all of the fees associated with each property if you ask.
- Good hospitals—Healthcare becomes more of a priority as we age so pay particular attention to the quality available in the surrounding area.
- Low taxes—Who wants to diligently plan for their retirement years and then pay hefty taxes? Make your money work for you, not the government. Choose an area outside the big cities but close enough to receive their benefits.
- Active social and cultural environments—Happy and healthy individuals live longer and enjoy their retirement more! Seek areas where other retirees want to enjoy themselves.
Return to Investments...
